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Detroit's property tax system plagued by mistakes, waste

Detroit — The city's property tax system is riddled with errors and waste, and is overseen by a pair of double-dipping officials who work just two days a week, a Detroit News investigation has found.

Tax bills are frequently sent to the wrong address, and homeowner exemptions that dramatically lower bills are granted without proof of eligibility, a recent audit found. Police are investigating the disappearance of nearly $310,000 in cash that went missing over five years from the Assessment Division.

Problems are so severe that city officials — under state pressure — agreed in December to spend $2.3 million on outside consultants to overhaul the system. Even so, two of its leaders not only have kept their jobs, but also are drawing pensions in additions to their paychecks.

Chief Assessor Linda Bade and her deputy, Frederick Morgan, retired last summer and were brought back on contracts, working about two days a week. Bade could earn up to $140,000 by this summer atop her $50,000 pension. Morgan could make up to $125,000 atop his $15,000 retirement.

That infuriates residents like Larissa Jimenez who are fed up with high city assessments.

"It just makes me so mad that these people who are making such good money are continuing to take advantage of people like me who live in the city and pay taxes," said Jimenez, 28, who lives in southwest Detroit. Last year, she tried unsuccessfully to appeal her $1,550 annual tax bill for a house she bought for $8,500 in 2009. The city set its market value at $33,174.

"They know these properties aren't worth what they say it's worth. (The assessors) are just getting paid to deny people … that way they can continue to pay people these outrageous salaries," Jimenez said.

Bade, who has worked for the city on and off since 1979, blamed budget cuts that have shrunk her staff to 36 from 90 in the late 1990s. She said her workers do their best under tough conditions.

"This is a terrible way to end a 30-year career," Bade said. "But better me than someone who doesn't know what they are doing."

Durene Brown, the city ombudsman, said Detroit officials have only themselves to blame. Brown said her office has received 3,600 complaints in the past two years from residents who said they never got a tax bill from the city's Treasury Department or got ones for the wrong properties.

"In the city of Detroit, the left hand never knows what the right hand is doing and that's unacceptable in the year 2013," Brown said. "It's real hard for me to listen to the city complain about how it's so broke when the city isn't doing anything to get out of being broke."

Making their appeals

Residents can appeal their tax bills to the city, but Bill McCarthy and other critics said the process is tilted against homeowners.

McCarthy has lived in East English Village since 1985 and never questioned his taxes until last year, when he learned his annual $3,000 bill was about the same as his sister's similarly sized house in nearby Grosse Pointe Park. He appealed to the Detroit Board of Review, but it kept his assessment at $38,594, or a market value of $77,188.

"It was a big joke," said McCarthy, who lives in a three-bedroom, 1,700-square-foot brick house. "It was predetermined.

"They are just there for the best interest of the city."

His only option was appealing to the state's tax court of last resort, the Michigan Tax Tribunal, which handled 12,500 residential cases — 3,015 from Detroit — last year . After hiring a firm and going through a four-month process, the tribunal in January lowered McCarthy's assessment to $8,500. His taxes will drop to about $800 per year.

Complaints are so rampant a cottage industry has emerged to challenge Detroit assessments.

After winning a tax appeal on a Detroit home they own, husband and wife team Georgia Kapsalis and Jon Werner started a business representing other Detroit property owners. They speak to neighborhood groups, hold classes and even find clients at City Hall who are confused with the process.

"The assessor is like the wizard behind the curtain," Werner said. "If Detroit does not address this property tax issue, more and more residents who pay their property taxes will be leaving and never returning."

Last year, Clinton Township businessman Harold Hoyt filed so many tax appeals for his clients to the state — 630 — that city officials agreed to work out a deal to avoid many of the tribunal hearings that can last nine months or more.

Hoyt said regular citizens rarely have luck without a professional representative.

"They don't stand a chance," Hoyt said. "It's a rigged game."

Not so, said Bade and Willie Donwell, a member of the city's nine-member Board of Review. Both said the city responds when owners prove there's been a mistake.

"It doesn't matter to me if you come in with a representative or yourself," Donwell said. "We look at everyone on a case-by-case basis."

Assessments based on sales

Critics said Detroit's taxes are artificially high because assessments don't reflect how much foreclosures have sunk property values.

Every year, assessments are calculated by studying recent home sales. In Detroit, most "distressed" properties such as sales of bank-foreclosed homes aren't included in the study. Bade and Morgan said they're following state law. Those who appeal taxes said the law makes exceptions for communities as hard-hit as Detroit.

The city's most recent sales study included only 684 sales, 5.6 percent of the city's 12,118 home sales from Oct. 1, 2011, to Sept. 30, 2012. A survey of other cities showed that most had a far higher percentage. Pontiac based its assessments on 16.5 percent of sales, while the figure was 30 percent in Ferndale and 15 percent in Hazel Park.

"It definitely gives the indication (Detroit officials) are cherry picking," said Josh Shillair, a former state tax tribunal hearings referee and attorney who now appeals taxes for owners. "There should be a lot more."

Morgan said comparisons to other cities are unfair.

"What we are trying to do is get to the right number, and we are trying to figure out what that is in this market," he said. "This is the craziest market I have ever seen."

'Hardest job in the state'

Outside audits of the assessing and treasury departments have been so stinging that the city hired Plante Moran in December to recommend reforms. The firm estimates its initiatives can eventually save the city some $6 million in the third year of its contract by improving technology, training staffers, outsourcing some work and streamlining operations.

One review, by Ernst & Young, concluded the two departments have a "prevailing culture which is riddled with bureaucracy and a lack of accountability."

Loren Monroe, the city auditor general, last year found that Bade's division wrongly gave out tax exemptions and when private buyers purchased city land the properties weren't returned to tax rolls . After the audit found more than $300,000 went missing, cameras were installed in the assessing office and police began to investigate, said Cheryl Johnson, the city's finance director.

Bade said her staff is correcting problems found in the audit, adding they've had recent successes in returning properties from defunct churches to the tax rolls and removing tax breaks for delinquent owners.

Bade and Morgan remain on contract because the city couldn't find anyone else with the state-required advanced certification — Level 4 — to supervise the rolls of a city as large as Detroit, Johnson said. The city sent recruitment letters to all the state's Level 4 assessors, but no one responded, she said.

Johnson said the two are worth the price and will probably make less than the full amount of their contract when it ends this summer.

"Their joint knowledge and experience has been extremely valuable to the City," she said in an email.

Bade and Morgan said they'd rather stay retired but are committed to Detroit.

"This is the hardest job in the state," said Morgan, 69, who began with the city in 1998. "Neither Linda nor I want to be here now. We could do a better job with more people. But who goes first, clerical workers or firefighters?"

Fed-up residents look to move

Until the problems are solved, residents will continue to flee the city whose population has fallen by more than 1 million since 1950, said Kapsalis, who represents property owners in appeals.

"The city assessors are not looking at the long-term damage to the city and property values and even real diminished tax dollars to the city because all these people are running away from their houses are not paying taxes," she said.

They are people like Jimenez, who plans to move from her southwest Detroit home."I am not going to continue to live in a place where I am not valued and my taxes aren't (either)," Jimenez said. "We should have the things we need — police, EMS. How are you going to make someone pay for something they aren't getting?"

Bill McCarthy hired a firm to help him appeal the assessment for the 1,700-square-foot East English Village house he has lived in since 1985. The tribunal lowered it after a four-month process. / David Guralnick / The Detroit News

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